Debt Ratios for Home Lending
Your debt to income ratio is a formula lenders use to calculate how much of your income can be used for your monthly mortgage payment after you have met your other monthly debt payments.
About the qualifying ratio
Most underwriting for conventional mortgages requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of gross monthly income that can go to housing costs (this includes mortgage principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt. Recurring debt includes auto/boat loans, child support and monthly credit card payments.
For example:
28/36 (Conventional)
- Gross monthly income of $4,500 x .28 = $1,260 can be applied to housing
- Gross monthly income of $4,500 x .36 = $1,620 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $4,500 x .29 = $1,305 can be applied to housing
- Gross monthly income of $4,500 x .41 = $1,845 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, use this Mortgage Loan Pre-Qualifying Calculator.
Guidelines Only
Don't forget these ratios are only guidelines. We'd be thrilled to go over pre-qualification to help you figure out how large a mortgage loan you can afford.
Selectplus Lending can walk you through the pitfalls of getting a mortgage. Give us a call at (818)645-7035.